Look For Fed to Taper Talk of ‘Tapering’ – Hilsenrath

By Michael Aneiro

While pundits today parse the wording of Bernanke’s speech to Congress and that of the latest FOMC minutes, Wall Street Journal Fed guru Jon Hilsenrath is already a step ahead of the crowd, telling Fed-watchers to expect less of the idea of ‘tapering ‘ from now on and more in the way of standalone Fed steps to test market reactions and enable flexible follow-up measures. From Hilsenrath’s latest post on the WSJ Real Time Economics blog:

This time, when the Fed shuts off bond buying, it won’t be abrupt and it won’t be predictable. The term “tapering” — which implies a predictable gradual process — probably doesn’t describe the plan very well any more, and you’re unlikely to hear Fed officials describing it like that. Instead, the Fed will take a step and then see what happens. Officials also want to avoid the market blowup that happened in 1994, when it took one step and the market assumed that meant a succession of additional steps.

“A step to reduce the flow of purchases would not be an automatic, mechanistic process to end the program,” Mr. Bernanke said. In other words, if the Fed takes a step to reduce the program and the economy falters, it could sit still for a while or even dial purchases back up.

The Fed effectively wants the markets to experience the same uncertainty it experiences about policy and the economy when officials walk into a meeting, and it wants to condition the market to avoid jumping to conclusions about what it will do next. As officials keep saying, it will depend on the economy.

Amey Stone is Barron’s Income Investing blogger and Current Yield columnist. She was formerly a managing editor at CBS MoneyWatch, MSN Money and AOL DailyFinance. Her responsibilities included overseeing market coverage and personal finance topics. Prior to those roles, she was a senior writer at BusinessWeek where she authored the Street Wise column online and contributed to the magazine’s Inside Wall Street column. Topics covered included economics, corporate finance, Fed policy, municipal bonds, mutual funds and dividend investing. She co-authored King of Capital, a biography of Citigroup Chairman Sandy Weill. She is a graduate of Yale University and Columbia University’s Graduate School of Journalism.